Under the new strategy, HP will combine its e-Vectra brand of corporate PCs and its planned e-Brio PCs for small business into the e-PC line. The shift, however, involves more than just consolidating a brand name. By combining the two lines, HP effectively will reduce the number of computer configurations it has to manage.
Rather than manufacture four e-Vectras and four separate e-Brio computers, HP will manufacture four e-PCs. Nonetheless, the company will differentiate these PCs by software and/or service bundles so that it can still market eight models.
In addition, the e-PC will capitalize on the growing demand for small desktops. Stylized, small and relatively inexpensive PCs like e-PC and Compaq Computer's iPaq and the original e-Vectra are quickly replacing traditional PCs, analysts say.
Unlike traditional desktops, which let buyers add more memory or change other parts, these computers are relatively resistant to upgrades. But the smaller size and fixed configurations make them cheaper to manufacture and buy. Dell recently came out with a line of small PCs for business as well.
Market researcher Gartner predicts 60 percent of PCs will be small models in two years.
HP unveiled the e-Vectra in February and has shipped 160,000 units since April. The company had also planned an e-Brio model for small businesses.
"We made some studies of the idea to create the e-Vectra for corporate and the e-Brio for small-business customers. But we discovered at this level it doesn't make sense for us to do this kind of differentiation," said Eric Chaniot, HP's worldwide e-PC product manager. "Because at the hardware level there is so little for us to configure, it was hard for us to really create two different products," he said.
"The approach HP's taking, it's not trying to differentiate the hardware," said Kevin Knox, an analyst at Gartner. "HP is going to wrap around the services and the software to make a small business product as well."
With smaller PCs offering adequate graphics, networking and other components integrated on the motherboard, "there is little companies can do to add value," he added.
HP will now focus more on services, software and other extras, particularly attractive to the small-business market. Four basic models will be available, with small-business e-PCs packing extras such as Microsoft Word 98, an Internet keyboard, a USB modem and HP's e-Center.
E-Center is part of HP's services for small businesses, offering Web-based faxing, business travel and data synchronization. FusionOne provides the tools for synching data between disparate small-office systems, such as PCs, Palm handhelds and cell phones.
The entry-level small-business e-PC will come with a 633-MHz Celeron processor, 128MB of RAM, a 10GB hard drive, a CD-ROM drive, an Internet keyboard, a USB modem, Word 2000 and Windows 98 for $849. HP also will offer an $899 15-inch flat-panel monitor with the small-business e-PC.
These smaller PCs came after Apple's success with the iMac. Executives from Compaq and other companies have acknowledged that style is a consideration in designing these new computers.
But style is only part of the bargain. One of the strong selling cards of these new, smaller computers is that they are cheap. Being smaller, these PCs require fewer raw materials and hence are cheaper to manufacturer.
Costs are further cut by reducing flexibility. Unlike traditional PCs, most of these computers are incapable of being upgraded: The internal components are integrated into the motherboard.
Case locks are also common. HP's e-Vectra, for instance, comes in a sealed case; memory can't be added. The only part that can be changed with ease is the hard drive, and that accommodation was made only because the hard drive breaks down more than other components, HP executives said earlier this year. While cutting back on the potential for upgrades reduces customer options, it cuts manufacturing costs.
Compaq ushered in the simplified, small-form-factor PC trend with the January release of iPaq. By focusing more on integrated components and shedding legacy serial and parallel ports for USB, PCs like iPaq are cheaper to produce and therefore cost less to buy than larger, expandable models. The entry-level iPaq model, for example, starts at $499.
"In the era of the one motherboard-fits-in-all-chassis kind of world, the emphasis is on keeping the PC lines as lean as possible and as few as possible," said IDC analyst Roger Kay. "Using the software load, Internet-based resources and other services to differentiate systems makes a lot of sense."
As PC makers move more toward smaller systems that are cheaper to produce and sell, hardware configurations will become meaningless, analysts say.
"In the future, we'll have one product for government, education and the large enterprise," Knox explained. "The differentiation will be the services and solution as well as the product as a whole."
Trying to boost USB
But in one area, these systems fall short: shedding legacy ports. Sources close to Compaq, which offers legacy-lite and legacy-free iPaq models, say USB-only systems aren't selling as well as expected.
A study conducted by Technology Business Research for CNET News.com found that 56 percent of technology managers wanted legacy ports on commercial systems. The survey polled 50 technology managers at Fortune 500 companies with 5,000 or more employees.
"It's kind of the security blanket, even though no one in the world needs these ports," Knox said. "But we're starting to see some signs people are getting over that."
In another sign of the limited appeal of legacy-free systems, U.S. PC sales leader Dell Computer continues to offer older ports on commercial systems. In mid-September Dell unveiled a new chassis design keeping older serial and parallel ports.
"We don't see a large migration to USB devices yet," Kurt Holman, Dell's manager of desktop product marketing, said at the time. "When we talk to our customers about giving up those legacy ports, they're very uncomfortable. Maybe it's cultural."
For its part, HP continues to offer serial and parallel ports on e-PC but is trying to build enthusiasm for USB by offering small-business customers specialized peripherals. Besides the USB modem shipping with e-PC, HP will also offer a USB CD-RW drive and HP wireless LAN adapter for networking up to 15 e-PCs without wires or cables.